Humans and societies always find ways to lower uncertainty, to innovate and to evolve. This is a continuous journey. Law is a natural outcome of people living and working together. It’s a continuation of our human history and evolution.
The rise of the Internet and the digital economy that it enabled had a profound and as yet not fully mapped out impact on our understanding of law and the limits of regulation. Its borderless nature undermined the central regulatory role that the nation-state had since early modernity. The disintermediation that it facilitated subverted existing hierarchies and disrupted well-established business models. The enabling technology here is a Distributed Ledger Technology known as blockchain. Blockchain is an empowering machine, a decentralised database with information stored in a network of computers across the globe. It can tokenize physical assets, add digital certificates as well as digital identities. As the asset is tokenized, its transaction history can be traced on the Blockchain with a smart contract enumerating its value and ownership having the individual in control and being self-sovereign.
What is however a contract and why do we have them in the first place ?
In ancient times people did not have written contracts or the notion of contacts as we know them today, but they still traded. Even without contract law, a moral obligation was created between them – one party makes a promise to another. In early forms of credit transactions, kinship ties secured the debt, for example when a tribe gave hostages until the debt was paid. Other forms of security took the form of pledging land.
As trade got more complicated, there were more disputes, conflicts and uncertainty. Society evolved and introduced forms of Contract law to strengthen and support these moral obligations by creating corresponding legal obligations and more certainty. New actors were also introduced, like courts and tribunals so that when performance was not achieved these actors would come in to interpret the contract and deal with ex post adjudication in case of conflict. In such instances courts through the years have not only addressed grievances but also acted as a catalyst for the correct adoption of Law and the contractual provisions in different circumstances and thus played a vital role in reducing uncertainty. This brought about an important function of courts for public good, certainty and social order, and the psychological need for individuals to trust eachothers’ commitments because they could rely on the power of the state/court to enforce them in cases of breach. This in turn is the lynchpin of freedom to contract.
The quest by humans to innovate, evolve and reduce the element of uncertainty is a perpetual quest and this brought aboutSmart contracts. Contrary to normal contracts which cannot guarantee an outcome albeit building a mechanism to achieve that outcome, smart contracts offer a possibility of highly reliable communication about future outcomes, more deterministic purposes and thus certainty. The agreed outcome result occurs automatically, uncertainty about performance, and about judicial recognition in most instances would disappear. If contract law exists to facilitate reliance through the ability to opt into predictable future consequences, then smart contracts seem to serve this function even more seamlessly.
Smart contracts are not just as one part of the larger trend of computerized technologies purporting to displace or replace human decision making, but they have the potential to be an enabler for higher purpose, an expression, a medium for societal evolution. They offer a window into thinking about law at a theoretical level. Even if one were uninterested in the technology, smart contracts could illuminate foundational issues in the theory of contract and law. Law is a system, and has its own legal cultural context but it is not a hermetically sealed system because it is in interaction with its context through human actors, which evolves with society and of which courts are one of a crucial craft. Their theoretical possibility, whether the technology can deliver or not, raises a pointed question about what function courts play when they adjudicate a contract case and if this will fundamentally replace or reduce litigation, moral values, court remit and thus change the social norms and fabric of society, culture and ultimately the purpose of certain legal provisions and future law.
This definitely calls for a new way of thinking and formulating laws and controls which are future proof and which cater for smart contracts’ unique capacity of creating new legal-structures, paradigms and how it can disrupt the way we currently think about society, the law and regulation. It will not totally replace contract law but will supplant a lot of its uses whilst at the same time create new legal and regulatory levers particularly in digital economy.
This new paradigm is fuelled by technology/code/algorithms and we need to make sure that all of us as algorithmic constituents enjoy a technology that is safe and apt for use. As Fuller ( an American architect, author and system theorist) opined, we should be the architects of our future, where as humans we give a direction. Professor Lessig also conceptualized on this saying that “as architects we can build, or architect, or code [crypto-legal structures] to protect values that we believe are fundamental, or we can build, or architect, or code [crypto-legal structures] to allow those values to disappear.” I am more for the former approach to preserve values and give technology and the expression of the individuals room to evolve so that society can innovate, evolve and emancipate.